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Disputes between siblings and family members over property and assets are very common. The recent news pertaining to a prominent political leader, a royal family and an industrialist, highlight the fact that many otherwise successful individuals have failed to anticipate potential feuds among the next generation after their lifetimes.
Inheritance can be a daunting subject and not just due to the legal framework and potential court procedures. Culturally, too, most Indian families resist openly discussing inheritance. Children may avoid bringing up the issue for fear of hurting the sentiments of their parents. For parents, the fear could be that the children may not be motivated to work if they come to know the value of the fortune they are likely to inherit. Or the concern could be about how to distribute the wealth equally among the various heirs.
However, not discussing something that is going to happen will not stop it from happening; and at some point, someone is going to have to sort out the estate - regardless of how big or small it is.
It is not always the emotional element of wealth that makes it imperative to plan for its succession. One should also take into consideration the limitations of the existing community laws which define the succession rules for Hindus, Muslims, Christians and other religions if one passes away without a will in place. These laws do not always keep pace with the socio-economic changes.
Religion and marital status
Additionally, the applicability of such laws also depends on the birth as well as the marriage of an individual. For instance, a couple who registers their inter-community marriage under the Special Marriage Act of 1954, will be severed from their individual community law and instead will be governed by certain provisions of Indian Succession Act. Conversely, an Indian couple marrying outside of India, or an Indian marrying a foreigner and solemnising the marriage under Foreign Marriage Act of 1969, would be governed by their respective community laws.
Look beyond physical assets
Another reason why it is important to have a structured wealth succession planning in place is the diversity and complexity of the wealth. In this era of knowledge and information technology, one must not ignore intellectual property (IP) rights, such as copy rights, patents, trade marks, royalty payment, which may turn out to be significant in value after the creator's life time. The creator may also need to make the heir/beneficiary aware of certain fundamentals related to such assets - for instance, a patent may expire if a beneficiary does not pay an annual fee or a copyright needs to be exercised jointly by all beneficiaries.
Will or private trust
Wealth succession planning may not be straightforward, but professional help is available. Professional advisers will be able to recommend a suitable solution after evaluating your assets, the position of your beneficiaries, desired control over wealth and beneficiaries, or flexibility in the succession plan. A will is an uncomplicated and indispensable document in wealth succession. However, for someone with minor children, dependants with special needs, those with a tendency to overspend or beneficiaries with conflicting expectations, a private trust may be a better solution. But do consider the incidental expenses such as stamp duty or capital gains tax before entrusting any asset to the trust.
Gift deeds and nomination
Gift deeds or family settlements can be used if one wants to transfer the wealth during one's lifetime. One should also not ignore the importance of insurance in succession planning considering its ability to provide funds. While choosing a suitable succession plan, one needs to be cognisant of the joint ownership of the asset. If there are joint tenancy clauses with the right of survivorship in your property agreement, the property will be automatically owned by the surviving owner. However, in the absence of such clauses, one has to specially bequeath his/her share to the joint owner in order to make the survivor a sole owner.
The practice of nomination on investments also plays a key role in wealth succession planning. Although not meant for establishing the ownership, it facilitates easy access to such investments. Choosing a competent executor/ trustee or a trustworthy guardian for minor children will complete your wealth succession plan.
A common mistake made in wealth succession planning is considering it as etched in stone for all of eternity. Circumstances can change and so does the succession plan. One has to review the wealth succession plan periodically and make changes befitting the evolved situation such as marriage or separation, death or birth.
Finally, keep your wishes secret but not the location of your succession document. Make it a point to inform someone you trust about the physical location of the will. It could be a family member, friend or your lawyer.
The author is Managing Director, RBS Financial Services (India)
